The 2.34 per cent drop on the index of Britain’s most valuable firms came as the Dow Jones Industrial Average flirted with its worst losing run since 1978.

The FTSE 100 fell 133.88 points to 5584.51, its biggest drop in a single day since Nov 16, wiping £35 billion off the value of the market.

In four successive days of trading falls, investors have lost £65 billion, with the FTSE 100 at its lowest level since Nov 30 last year and down 7.1 per cent this year. Any investor who had put their full ISA allowance of £10,680 in a FTSE 100 tracker fund at the start of the tax year would be nursing losses of £220.

Fears that the US economy was heading into recession and the ongoing crisis in the eurozone have erased $2 trillion of value from world stock markets in the past week.

Amid increasing nervousness about the chances of a fresh recession and its impact on consumers, the price of gold rose again.

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It came as Robert Chote, the head of the Office for Budget Responsibility, the Government’s fiscal watchdog, all but admitted that the official growth forecast for this year of 1.7 per cent, announced in George Osborne’s March Budget, would be missed and that current growth could be relatively weak.

Yesterday’s slump followed weak economic data from America’s key services sector, which came hard on the heels of Tuesday’s shock downturn in US consumer spending.

“The market sentiment is on apocalypse level,” said Peter Buergler, a trader at Luzerner Kantonalbank in Switzerland. “Opinions are resurfacing that the US could possibly slide into a recession.”

Experts also fear that America could yet lose its AAA credit rating — despite President Barack Obama finally pushing through the deal to raise its $14.3 trillion debt ceiling.

Matteo Regesta, a strategist at BNP Paribas bank in London, said the outlook was bleak. “Equities are weak and risk aversion is rising,” he said. “There seems to be no catalyst in sight that could fade the current market sentiment.”

Concerns over possible Greek-style bail-outs for Italy and Spain produced further market jitters. The cost of borrowing for the governments of Italy and Spain reached their highest level since the launch of the euro in 1999. At more than 6 per cent, the yields on both countries’ 10-year bonds are perilously close to the 7 per cent level at which the European Union was forced into emergency bail-outs for Greece, Ireland and Portugal.

Fears over a slowing global economy hit the oil price, which fell 2pc to below $114 a barrel.

“Traders are fixated on a weakening economy and all the talk of austerity seems to be driving home a message of lower consumption,” said Cameron Hanove, the energy consultants. “It is not just here, either. Economic data from the eurozone, China, Japan and the US all seem to be disappointing.”

Falling stock markets prompted investors to seek “safe haven” investments. The gold price hit another record high, up to almost $1,673 an ounce, while British government bonds rose, pushing the return demanded by investors for 10-year gilts to a record low.

Switzerland cut interest rates by half a percentage point to devalue a Swiss franc pursued by investors in preference to the relatively riskier euro and dollar.

“A lot of people are pulling back and exiting high-risk type areas,” said Jim Ritterbusch, an analyst. “It’s sticking the money in the mattress so to speak.”

Recession fears in the US led to talk that its Federal Reserve may attempt to kick-start the economy and get consumers spending again. “I believe the Fed is dusting off contingency plans if the economy does not improve,” said Peter Fisher, of BlackRock fund managers.

The slowing American economy has been mirrored in weak service sector data from Asia and Europe.

“It’s not just the US, it’s the whole world,” said Uri Landesman, of Platinum Partners in New York. “I’m having trouble remembering the last good data point.”